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Chapter3ClassLecture_D2L.pptxSection 1 The Entrepreneurial Perspective
Chapter 3
Generating and Exploiting New Entries
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Prof. Edward Papabathini
ICS: 394 Entrepreneurship Strategy
LEARNING OBJECTIVES
Essential act of entrepreneurship involves new entry.
Entrepreneurial strategy can first generate, and then exploit over time, a new entry.
Resources are involved in the generation of opportunities.
Assess the attractiveness of a new entry opportunity.
Entrepreneurship involves making decisions under conditions of uncertainty.
Assess the extent of first-mover advantages and weigh them against first-mover disadvantages.
Risk is associated with newness
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Prof. Edward Papabathini
©McGraw-Hill Education.
New Entry
New entry is one of the essential acts of entrepreneurship.
Entrepreneurial strategy maximizes benefits of newness and minimizes its costs. Elements include:
The generation of a new entry opportunity.
The exploitation of a new entry opportunity.
A feedback loop.
If the new entry is exploited, performance depends on:
Entry strategy.
Risk reduction strategy.
The way the firm is organized.
Competence of the entrepreneur and management team.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Generation of a New Entry Opportunity
Resources are the building blocks, combined in various ways to achieve superior performance.
Valuable
Rare
Inimitable
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Prof. Edward Papabathini
©McGraw-Hill Education.
Entrepreneurial Resource
The basis for entrepreneurial resource is knowledge built up over time through experience – idiosyncratic, therefore rare.
The entrepreneur’s market knowledge is deeper than knowledge gained through market research.
An entrepreneur’s technological knowledge often leads to new markets rather than meeting unmet market needs.
A resource bundle is the basis for a new entry
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Assessing the Attractiveness of a New Entry Opportunity
The following considerations help the entrepreneur determine if the product is valuable, rare, inimitable and worth pursuing.
Information on a new entry.
Window of opportunity may be open or shut.
Comfort in making decisions under uncertainty – must choose between an error of commission or an error of omission.
The assessment of a new entry’s attractiveness
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
First Mover Entry Strategy
First movers develop a cost advantage
First movers face less competitive rivalry.
First movers can secure important suppliers and channels of distribution.
First movers are better positioned to satisfy customers.
First movers gain expertise through participation.
First movers do not always prosper.
First mover advantages must outweigh the disadvantages and depend on:
Environmental stability.
Ability to educate customers.
Ability to erect barriers to entry and imitation to extend the firm’s lead time.
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©McGraw-Hill Education.
Environmental Instability – First Mover (Dis)Advantages
Performance depends on the fit between a firm’s bundle of resources and the external environment.
Entrepreneurs face demand and technological uncertainty.
Demand uncertainty .
First movers technological uncertainty.
Demand is unstable or technological uncertainty is high
Changes in demand or technology
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Customers’ Uncertainty and First Mover (Dis)Advantages
The element of newness may mean uncertainty for customers.
To reduce this uncertainty, entrepreneurs can:
Offer informational advertising or use comparison marketing.
When the product is highly innovative
Delaying entry in a market
First movers can have an advantage
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Lead Time and First Mover (Dis)Advantages
Entry barriers provide a grace period of limited competition.
The first mover can extend lead time by using barriers to entry.
Building customer loyalties.
Building switching costs.
Protecting product uniqueness.
Securing access to important sources of supply and distribution.
Barriers to entry reduce competition.
If there is insufficient customer demand, consider allowing competitor into the industry to share pioneering costs.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Risk Reduction Strategies for New Entry Exploitation
A new entry involves considerable risk.
The choice of market scope ranges from a narrow- to a broad-scope strategy depending on the risk targeted for reduction.
Narrow-scope strategy
A broad-scope strategy.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Imitation Strategies
Imitation strategy is another strategy for minimizing risk.
Imitation strategies include franchising and “me-too” strategy.
An imitation strategy may reduce R&D costs, reduce customer uncertainty, and provide immediate legitimacy.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
Managing Newness
Creation of a new organization offers some liabilities of newness.
The entrepreneur can also benefit from assets of newness.
A heightened ability to learn new knowledge.
New ventures have strategic advantage over mature companies.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
LEARNING OBJECTIVES REVIEW
To understand that the essential act of entrepreneurship involves new entry.
To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry.
To understand how resources are involved in the generation of opportunities.
To be able to assess the attractiveness of a new entry opportunity.
To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty.
To be able to assess the extent of first-mover advantages and weigh them against first-mover disadvantages.
To understand that risk is associated with newness but there are strategies that the entrepreneur can use to reduce risk.
3-‹#›
Prof. Edward Papabathini
©McGraw-Hill Education.
